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Understanding Bank of New York Mellon’s Return Ratios

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Profitability suffers due to low interest rates and global weakness

In this part of the series, we will take a look at Bank of New York Mellon’s (BK) profitability ratios and compare them to Wall Street estimates.

A key element gripping the US banking sector (IYF) (IYG) is the prevalent near-zero interest rate environment that is hurting bank earnings. In a meeting held in September, Janet Yellen, chief of the Federal Reserve, decided to delay an interest rate hike, citing global concerns as the reason. US banks earn lower returns on their assets as well as lower interest-based income when interest rates are low.

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Global weakness has also impacted trading desks and slowed down merger and acquisition activity, which could impact future earnings of investment banks like BNY Mellon. In order to boost profitability in a low interest rate environment, banks are reducing expenses by restructuring their businesses and focusing on their core.

Return ratios for BNY Mellon

Bank’s valuations are derived from the returns they are able to generate on assets and shareholder equity. These are key profitability measures for banks. During the third quarter, BNY Mellon posted return on equity (or ROE) of 9.1% compared to 11.6% during the same period last year. In the previous quarter, ROE was 9.4%.

The company also returned $690 million to shareholders in the form of share repurchases. For the quarter, it declared a dividend of $0.17 per share. This translates to a dividend payout ratio of 23%. Its peers Northern Trust (NTRS) and State Street (STT) will release earnings results later in the week.

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